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Commercial Banks and Agriculture

Last week in the column we discussed Farm Credit and some of the trends. This week, let’s examine commercial banks lending to agriculture.

Today there are more than 8,000 banks in America, in contrast to five banks that make a majority of the loans in Canada. Approximately 2,800 would be considered agricultural banks. Today, banks are the number one lender to agriculture.

Community banks, primarily located in the Midwest and pockets of agriculture on the East and West Coasts, are the backbone suppliers of commercial bank credit. The number of banks loaning money to agriculture by 2010 could be reduced to less than 1,200.

These community banks can offer a wide range of services and, in some cases, have loan officers who know their customers’ operations and families very well.

One of their challenges is some of the customers are becoming too large in capital requirements. This requires the bank to sell off parts of the loan to other banks or secondary markets such as Farmer MAC.

Some of these banks are family owned, not having to maximize shareholder value every quarter, which allows some flexibility.

The larger bank entities have had a history in some cases of loaning money only in good times and withdrawing from agriculture in tough times. That being said, there are some larger banks that are very competitive lenders in agriculture. They usually have the support of upper management and the internal risk management group.

A Laugh

I am writing this column at Dick Clark’s Café in Salt Lake City Airport, catching a red-eye later this evening. A 70-year-old lady was just carded. She asks, "Are you kidding?" The waiter says, "It’s management’s policy." Talk about overkill!

No Travelers

Officials at the airport were telling me that normally passenger traffic is 10,000 people per day. Today the count was 3,200. Do they know something?

Editors' note: Dave Kohl, Soybean Digest Trends Editor, is an ag economist at Virginia Tech. He recently completed a sabbatical working with the Royal Bank of Canada. He is now back at Virginia Tech with his academic appointment, which is teaching, extension, and applied research.

To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.